Get Your $114 Kindle -- With a Catch

Just when you thought that the limbo bar of e-reader prices couldn't get any lower, Amazon.com's (Nasdaq: AMZN) cranking up the Chubby Checker.

The leading online retailer is now taking pre-orders for a special $114 Kindle, priced at a $25 discount to its conventional non-3G model.

There's a catch to the discount, though. Buyers will be subjecting themselves to ad-supported screensavers and the occasional sponsored offer.

You're probably shaking your head in disbelief. Who would want to carry around a digital billboard for a measly $25 markdown?

"Two words: Tack-y," I heard you say.

I hear you, but I raise you two more words: brilliant Bezos.

Raising the bar by lowering the stickSponsored screensavers and special offers will only show up when your Kindle is dormant or on the lower part of your e-reader's home screen. In other words, it's not going to pop up just as you're knuckles deep into a Stephen King classic.

Amazon is also giving out some examples of these special offers:

$10 for $20 Amazon.com gift card

$6 for 6 Audible books (normally $68)

$1 for an album in the Amazon MP3 Store (choose from over 1 million albums)

$10 for $30 of products in the Amazon Denim Shop or Amazon Swim Shop

All of the examples are for Amazon.com promotions. If the first one seems awfully familiar, it's because it's the same deal that helped LivingSocial move 1.3 million Amazon gift cards earlier this year. Amazon's a minority stakeholder in the social coupon site. The sponsored screensavers will lean on third-party brand advertisers. Amazon's singling out Chase, Olay, General Motors' Buick, and Visa as launch sponsors, but the actual special offers appear to be largely an in-house affair.

Is that so bad? If a Kindle owner is already a frequent Amazon shopper, these markdowns may not be a distraction at all. I'm guessing that more than a few of the owners of the non-subsidized $139 Kindle and $189 Kindle 3G wouldn't mind these offers.

Turn the pageWhere do you think this will lead? Right now, we're looking at a real pricing advantage that the Kindle will have over Barnes & Noble's (NYSE: BKS) Nook and the easily forgettable "me too" competition. Do you really think that a deficit-saddled Barnes & Noble or a juggling Sony (NYSE: SNE) can build out this kind of promotional ecosystem? The Nook does offer in-store perks, but it's unlikely to match Amazon pricing if it means even steeper losses.

Apple (Nasdaq: AAPL) hasn't had a problem moving iPads despite the e-reader price war. The consumer knows the difference between a multimedia tablet and a much cheaper one-trick e-ink pony. However, will Apple be immune to Amazon's next salvo?

I can't be the only one that sees where this is going next.

I took advantage of Amazon's intuitive platform to dust off a coming-of-age novel I wrote in college. It's not very good and sloppily edited, but I was able to sell more than 100 digital copies through Amazon's Kindle store at $0.25 each. Sales slowed dramatically a year later when Amazon required a minimum selling price of $0.99. I would have no problem giving the book away if Amazon offered up a revenue-sharing ad-supported model for authors.

A $25 haircut on the hardware may not move more Kindles, but access to free ad-supported books (as well as the premium versions sans ads that are available now) could be a real differentiator. If Amazon is already conditioning readers to accept ads for lower Kindle prices, it won't be long before Amazon's Kindle morphs into the Google AdSense of self-publishing by monetizing chapters.

Amazon can't back off now. Google (Nasdaq: GOOG) would prefer to be the Google AdSense of any growing web-based media form, and it wouldn't be a stretch to do just that through an Android-powered e-reader. Apple has a history of protecting content prices on iTunes, but it's not going to price its virtual bookstore out of contention.

The web-based publishing game is changing.

Again.

Have you recently become an e-reader convert? Share your thoughts in the comment box below.

Longtime Fool contributor Rick Munarriz is working on a new novel -- Tourist Trap: Miami-- which he plans to publish through Kindle's storefront by year's end. He does not own shares in any of the companies in this story. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.

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Ugh! I just bought a new Kindle (upgrading from a version 2 to a version 3) and I'm kind of annoyed that I won't be getting these offers on my kindle! I don't want to have to spend $114 to get them. Maybe Bezos will figure out a way to send them to everyone, which would only benefit him in the long run!